Interpretation of ‘Court’ in Section 14 of the Arbitration Act
Edit: The position of law laid written about in this article seem to have changed with the decision of Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal, (2022) 10 SCC 235. For a change in law, see this article
Section 14 of the Arbitration Act which is contained in Chapter III deals with the failure or impossibility of an arbitrator to act in an arbitration. S. 14(1) provides that the mandate of an arbitrator shall be terminated terminate and he shall be substituted by another arbitrator if he becomes de jure or de facto unable to perform his duties [S. 14(1)(a)]
S. 14(2) provides that in case a controversy remains with respect to any of the grounds referred to in S. 14(1)(a), a party may apply to the ‘court’ to decide on the termination of the mandate of the arbitrator.
The present article seeks to examine whether, in the case of a domestic commercial arbitration, a petition under Section 14 for the termination of the arbitration and his substitution thereof would lie before the District Commercial Court or only the High Court.
Analysis of Chapter III of the Arbitration Act
Chapter III of the Act deals with the ‘composition of the arbitral tribunal’ and its allied aspects such as the number of arbitrators[1], the procedure for the appointment of arbitrators[2], their termination thereto[3] and the grounds on which the mandate of the arbitrator can be terminated[4]. Being mindful of the importance of maintaining independence and impartiality in arbitration, the lawmakers have included Section 12 and S. 13 of the Act which stipulate the grounds and procedure for challenging the mandate of an arbitrator.
S. 12(1) mandates that when a person has approached for his possible appointment as an arbitrator, such person shall have to make a disclosure as to his independence and impartiality. This disclosure has to be done as per the Sixth Schedule of the Act[5]. Section 12(1)(a) mandates that such person should declare any circumstances which are likely to give rise to ‘justifiable doubts as to his independence and impartiality’.
It is pertinent to mention that the scope of Section 12 has been expanded by virtue of the Arbitration and Conciliation (Amendment) Act, 2015 [‘2015 Amendment’]. The purpose of this amendment has been explained by the Supreme Court in Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755[6] to hold that, firstly, Section 12(1) imposes a duty upon the arbitrator disclose in writing any circumstances which may raise justifiable doubts as to his independence of impartiality[7]. Secondly, S. 12(1) now also mandates that the disclosure has to be made in the form of 6th schedule[8]. Finally, the existence of justifiable doubts as to the independence and impartiality of the arbitrator have to be determined by the guiding factors laid down in the 5th schedule[9].
The difference between Section 13 and S. 14 was explained thus - when there is a disclosure in writing which is likely to give justifiable doubts as to the independence and impartiality of the arbitrator, the appointment of such arbitrator has to be challenged under Section 13 before the arbitrator himself[10]. However, when the disclosure points to a case under Section 12(5), then the arbitrator becomes de jure incapable of performing his functions as per S. 14(1)(a), and in such a case, a party has to apply to the court to decide on the termination of the mandate[11]
Competent forum for the purposes of Section 14
There is an inherent contradiction in Section 14 as to the forum in which an Application under this Section would lie.
The first interpretation of this Section is that such an application would lie before the High Court. The line of argument runs thus: S. 14(1) provides for the substitution of the arbitrator once his mandate is terminated. Substitution of an arbitrator necessarily involves the appointment of a new arbitrator and is a facet of appointment. Since the appointment of an can arbitrator can only be done by the High Court in exercise of its power under Section 11 of the act, his substitution can therefore only be done by the High Court as well. Thus, the District commercial court would have no jurisdiction to entertain such a petition and the value of the claim would be irrelevant for determining the jurisdiction.
The other interpretation runs thus: S. 14(2) specifically mentions ‘Court’ thus,
(2)If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
S. 2(e)(i) of the arbitration act defines ‘court’ in case of a domestic commercial arbitration to mean the principal civil court of original jurisdiction in the district and includes the High Court in exercise of its ordinary original civil jurisdiction having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a Suit
Thus, S. 14(2) read with S. 2(e)(i) would indicate that the question whether the Section 14 application would lie before the High Court or the District Commercial Court would depend upon the on the value of the claim Petition. In other words, such a petition (specifically in context of Delhi) would lie before the High Court only if the claim value is about to 2 Crores. Else, such an application would lie only before the District Commercial Court.
While this conflict has not been considered in great detail by any court, it seems that the Delhi High Court has been swayed by the first interpretation.
In Raksha Vigyan Karamchari Sahkari Awas Samiti Ltd. v. Proto Developers and Technologies Pvt. Ltd., 2021 SCC OnLine Del 2731, a single Bench of the Delhi High Court considered this issue in context of an application made under Section 14. The Delhi High Court adopted the 1st interpretation suggested above and opined that the provision of Section 14 of the Act is unequivocal towards the appointment of a substitute Arbitrator once the mandate of an Arbitral Tribunal has been terminated by this Court under the said provision, and thus, such a petition would lie only before the Delhi High Court irrespective of the pecuniary jurisdiction[12].
The court however failed to give any reasons for departing from the explicit definition of court as defined under S. 14(2) read with S. 2(1)(e) of the Act.
A more elaborate reason may be gauged from the decision of DDA v. Tara Chand Sumit Construction Co 2020 SCC OnLine Del 2501. In this case, the Delhi High Court was dealing with a petition made under S. 29(A) of the act for extension of the time period and for substitution of the mandate of the arbitrator. S. 29(A)(5) and S. 29(A)(6) of the act read thus,
(5)The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
(6)While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
A specific objection was raised that value of the claim Petition was under 2 crores, such a petition would not lie before the High Court, and would lie only before the District Commercial court. The court however repelled the contention thus,
29. In case a petition under Section 29A of the Act is filed before the Principal Civil Court for extension of mandate and the occasion for substitution arises, then the Principal Civil Court will be called upon to exercise the power of substituting the Arbitrator. In a given case, the Arbitrator being substituted could be an Arbitrator who had been appointed by the Supreme Court or the High Court. This would lead to a situation where the conflict would arise between the power of superior Courts to appoint Arbitrators under Section 11 of the Act and those of the Civil Court to substitute those Arbitrators under Section 29A of the Act. This would be clearly in the teeth of provisions of Section 11 of the Act, which confers the power of appointment of Arbitrators only on the High Court or the Supreme Court, as the case may be. The only way, therefore, this conflict can be resolved or reconciled, in my opinion, will be by interpreting the term ‘Court’ in the context of Section 29A of the Act, to be a Court which has the power to appoint an Arbitrator under Section 11 of the Act. Accepting the contention of the respondent would lead to an inconceivable and impermissible situation where, particularly in case of Court appointed Arbitrators, where the Civil Courts would substitute and appoint Arbitrators, while extending the mandate under Section 29A of the Act.
Thus, the court held that such a petition would lie before the High Court irrespective of the value of the claim Petition because there could be a conflict between the power of superior courts to appoint arbitrators under Section 11 of the Act and those of civil court to substitute those arbitrators under Section 29(A) of the act.
Further, the court also held that since the petitions under Section 11 of the Act are filed irrespective of the pecuniary jurisdiction of the Court ‘the same analogy would apply to the petitions under Section 29A of the Act’ [13]
Extending the above argument, it can be argued that the same logic would apply to an application made under Section 14 as well. It is submitted that the author respectfully disagrees with the above view because of the following reasons:
The said interpretation fails to take into account the plaintext of the above sections. It is submitted that while Section 11, specifically gives the power to the ‘High Court’, Section 14/S. 29A only talk about the ‘Court’. It is submitted that the said approach amounts to redefining ‘Court’ for the purposes of S. 14 as S. 29A as the ‘High Court’. The legislature consciously has distinguished between the said phrases and has not used them interchangeably. For example, an application under Section 34 of the Act for setting aside of the arbitration award can only lie before the court which would mean the court as determined by the pecuniary jurisdiction.
While it is true that there may be some conflict between the power of the High Court under Section 11 to appoint the arbitrator, and the power of the District Commercial court under Section 14 to substitute him, such a conflict would not arise in all situations. Such conflict would only arise when a Section 11 application has been filed before the High Court in the 1st place. It is submitted that in case the appointment of the arbitrators has been done mutually without approaching the High Court under Section 11, such conflict would not arise. Thus, there seems to be no reason why a litigant should be forced to a more expensive remedy of approaching the High Court without approaching the Civil Court.
Finally, the said interpretation may also lead to multiplicity of proceedings. In this regard, consider the case where an arbitrator has been appointed unilaterally by one of the parties to the arbitration agreement and such arbitrator proceeds to pass an interim order under Section 17(1) of the Act. Even though such appointment is illegal in light of the law laid down in Proddatur Cable TV Digi Services v. Citi Cable Network Limited : (2020) 267 DLT 51, the party would still have to challenge the interim award under S. 37 of the Act. While such an appeal under Section 37 of the act would lie before the District Commercial court, the party would have to challenge the arbitration as a whole before the High Court in view of the interpretation of DDA v Tara Chand (supra) case. It is submitted that such an approach may be counter productive, as neither of the courts would be able to appreciate the situation as a whole and there is a possibility of conflicting findings by different courts.
[1] S. 10, Arbitration and Conciliation Act, 1996
[2] S. 11, Arbitration and Conciliation Act, 1996
[3] S. 13 – S. 15, Arbitration and Conciliation Act, 1996
[4] S. 12, Arbitration and Conciliation Act, 1996
[5] Explanation 2 of S. 12, Arbitration and Conciliation Act, 1996
[6] Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755
[7] Para 14, Bharat Broadband (supra)
[8] Para 14, Bharat Broadband (supra)
[9] Para 14, Bharat Broadband (supra)
[10] Para 17, Bharat Broadband (supra)
[11] Para 17, Bharat Broadband (supra)
[12] Para 14, Raksha Vigyan Karamchari Sahkari Awas Samiti Ltd. v. Proto Developers and Technologies Pvt. Ltd., 2021 SCC OnLine Del 2731
[13] Para 31, Raksha Vigyan Karamchari Sahkari Awas Samiti Ltd. v. Proto Developers and Technologies Pvt. Ltd., 2021 SCC OnLine Del 2731
